As per notifications 05/2022 (Central Tax Rate) dated 13 July 2022, ‘Service by way of renting of a residential dwelling to a registered person is also taxable.
This new applicability will be levied on Reverse Charge Mechanism basis and not under Forward Charge Mechanism.
Under RCM scheme the liability to pay GST is on the recipient of supply of goods and services that too only when the house is rented to a GST registered person.
As per the new notifications 05/2022 (Central Tax Rate) dated 13 July 2022 which is applicable from 18th July 2022 Services by way of renting of residential dwelling house by any person to any registered person is subject to GST at 18% on RCM basis and may claim the ITC on the same i.e., if the landlord is GST Registered person or not this new amendment will not be applicable to him under any circumstances as it is applicable ONLY TO TENENT WHO IS A GST REGISTERED PERSON.
If supplier i.e., lessor/landlord is a GST registered person, the supply would be shown as outward supply liable to be taxed under RCM , hence no additional GST liability on the landlord.
Mandatory registration is only when a person provides services in excess of Rs 20 lakh or supply of goods in excess of Rs 40 lakhs in an year.
The applicability of the new Insertion has been explained below with different scenarios:
If GST registered or non registered landlord rents a residential dwelling to GST registered person for residential or commercial purpose, GST at 18% to be paid by the Tenant and claim the ITC.
If GST registered or non registered landlord rents a residential dwelling to GST unregistered person for residential or commercial purpose, no GST is liable to be paid by the tenant.
If a person is also a sole proprietor and resides in a rented house the rent has to be taken as personal expense cannot be taken as business expenses just due to applicability of GST . GST will be paid under RCM but the ITC of the GST paid under reverse charge cannot be claimed as it is blocked per section 17(1).
But if the proprietor takes it on rent for its employees that would be considered as furtherance of business and hence shall be allowed to take credit of taxes paid under RCM.
It is advisable for individuals to not take residential property on rent in the name of the business (proprietorship concern) to avoid GST liability.
In case a corporate entity takes a residential flat for its employees and the landlord is a Non GST holder, the corporate entity has to discharge the GST liability and not the salaried employee.
When a company, LLP, Firm, AOP, BOI, etc takes a residential dwelling for the purpose of residence on rent for employees it will be considered as an item of business expenditure. GST will be paid under RCM and the ITC of the GST paid under reverse charge can be claimed.
When a residential dwelling is taken by a registered person on rent for commercial purpose it will be treated at par with the commercial unit. If the landlord is unregistered then GST shall not be levied and paid by either the landlord or the tenant. If the landlord is registered GST will be charged on forward charge basis and the recipient can take the ITC of the same.
When a composition dealer who is registered under GST takes a residential dwelling for the purpose of residence on rent then it will be considered as an item of business expenditure. GST will be paid under RCM but the ITC of the GST paid under reverse charge cannot be claimed as per section 10(4) by a composition dealer.